This study comprehensively examines the United States federal and Wisconsin state Research and Development (R&D) tax credit requirements applicable to businesses operating in Green Bay, Wisconsin. It provides five detailed industry case studies demonstrating how Green Bay’s unique industrial history positions local enterprises to leverage these statutory tax incentives.

Green Bay, Wisconsin, possesses a profound industrial heritage that has continuously evolved over the past two centuries. Established initially as a French fur-trading post in 1634 by explorer Jean Nicolet, the settlement capitalized on its strategic geography at the mouth of the Fox River, serving as a gateway between the Great Lakes and the Mississippi River system. By the mid-19th century, the regional economy pivoted toward resource extraction, transitioning into a booming factory town that catered to the lumber and iron-smelting industries. Following the catastrophic regional forest fires of 1871 and the depletion of timber stands, local entrepreneurs adapted by engineering a massive pivot toward paper manufacturing, heavily utilizing the Fox River for both hydropower and logistics. Simultaneously, the rich agricultural output of Northeastern Wisconsin necessitated advanced food processing and meatpacking infrastructure, which in turn birthed national transportation logistics networks and highly specialized industrial machinery sectors. Today, nearly one in five jobs in Green Bay remains tied to manufacturing. This relentless cycle of economic adaptation and industrial engineering renders Green Bay a highly fertile environment for the generation of qualified research expenditures (QREs) eligible for both federal and state tax incentives.

The United States Federal Research and Development Tax Credit Framework

The Federal Research and Development tax credit is a primary fiscal mechanism designed to incentivize domestic corporate investment in technological advancement and industrial innovation. Originally introduced by the Economic Recovery Tax Act of 1981 to combat declining national research spending, the credit was made a permanent fixture of the Internal Revenue Code (IRC) via the Protecting Americans from Tax Hikes (PATH) Act of 2015. The statutory architecture governing the credit is highly complex, relying primarily on the interplay between IRC Section 174 and IRC Section 41.

The Interplay Between IRC Section 174 and IRC Section 41

A precise delineation between IRC Section 174 and IRC Section 41 is critical for regulatory compliance. Section 174 governs the fundamental tax treatment of “research and experimental expenditures” incurred in connection with a taxpayer’s trade or business. Historically, Section 174 permitted taxpayers to immediately deduct these expenses in the year they were incurred. However, following the enactment of the Tax Cuts and Jobs Act (TCJA) of 2017, taxpayers are legally mandated to capitalize and amortize specified domestic research or experimental expenditures over a five-year period (and foreign research over a fifteen-year period) for tax years beginning after December 31, 2021.

IRC Section 41, conversely, provides the actual tax credit for increasing research activities over a historical base. To claim the Section 41 credit, the underlying expenses must first qualify under Section 174 as research and experimental expenditures in the experimental or laboratory sense. The credit is generally calculated as 20 percent of qualified research expenses (QREs) that exceed a calculated base amount, or 14 percent under the Alternative Simplified Credit (ASC) method. QREs are strictly limited by statute to in-house research expenses (taxable wages and supplies consumed in the research process) and 65 percent of contract research expenses paid to third-party entities performing qualified research on the taxpayer’s behalf.

The Four-Part Test for Qualified Research

For an activity to be considered “qualified research” eligible for the Section 41 credit, the taxpayer must prove that the activity strictly satisfies a cumulative Four-Part Test. Failure to meet any single prong of this test results in the immediate disqualification of the associated expenditures.

Statutory Exclusions and Internal Use Software (IUS) Requirements

IRC Section 41(d)(4) explicitly outlines several activities that are categorically excluded from the definition of qualified research, regardless of whether they otherwise meet the Four-Part Test. These statutory exclusions include research conducted after the beginning of commercial production, the adaptation of an existing business component to a specific customer’s requirement, the duplication of existing products (reverse engineering), routine data collection, ordinary quality control testing, and research conducted outside the physical borders of the United States. Furthermore, research funded by a grant, contract, or another entity—where the taxpayer does not retain substantial rights to the research or does not bear the financial risk of failure—is legally disqualified.

A highly scrutinized and heavily litigated area of the federal tax code pertains to Internal Use Software (IUS). Software developed primarily for the taxpayer’s internal administrative or operational functions (such as financial management, human resources, or internal inventory platforms) faces a significantly heightened evidentiary burden. In addition to the standard Four-Part Test, Internal Use Software must pass an additional three-part High Threshold of Innovation Test (HTIT):

• The Innovation Test: The software must be highly innovative, meaning its implementation will result in a reduction in cost or an improvement in speed or operational efficiency that is substantial and economically significant to the taxpayer.
• The Economic Risk Test: The software development must involve significant economic risk. The taxpayer must commit substantial financial and personnel resources to the development effort with a high degree of technical uncertainty regarding whether the project will ultimately succeed.
• The Commercial Availability Test: The software cannot be commercially available as an off-the-shelf solution. It must be proven that comparable software cannot be purchased, leased, or licensed in the commercial market without requiring modifications that themselves would satisfy the HTIT.

Federal Administrative Guidance and Recent Tax Court Jurisprudence

Recent litigation in the United States Tax Court has heavily emphasized the strict evidentiary and documentation burdens placed on taxpayers claiming the R&D credit. The Internal Revenue Service (IRS) routinely challenges claims that lack contemporaneous documentation proving that a systematic process of experimentation actually occurred.

In Suder v. Commissioner (T.C. Memo. 2014-201), the Tax Court evaluated a telecommunications equipment manufacturer’s R&D credit claim. The IRS challenged the company’s use of percentage estimates for the wage allocations of senior management and engineering staff. The Court largely upheld the taxpayer’s claims, noting that the judicial Cohan rule allows for the reasonable estimation of expenses if the taxpayer can definitively prove the underlying qualified activities occurred. The ruling affirmed that senior management time spent in high-level product strategy meetings, brainstorming sessions, and alpha/beta testing supervision legally qualifies as direct supervision or direct support of R&D. Crucially, the Court established that businesses do not have to “reinvent the wheel” to qualify; applying existing scientific principles to a new, specific integration challenge perfectly satisfies the technological uncertainty requirement.

Conversely, the ruling in Siemer Milling Company v. Commissioner (T.C. Memo. 2019-37) serves as a stark warning to manufacturers regarding documentation. The Tax Court completely disallowed the R&D credits of an established wheat milling company due to a profound lack of substantiation. The taxpayer failed to demonstrate a methodical plan involving a series of trials to test hypotheses, analyze empirical data, and refine the product design. The Court’s decision highlighted that routine product formulation and minor recipe tweaks, without contemporaneous records proving the systematic evaluation of technical alternatives, definitively fails the Process of Experimentation test.

Further clarifying the boundaries of qualified research, the recent ruling in Phoenix Design Group, Inc. v. Commissioner (2023) explored the definitions of standard engineering design versus experimental research. The court ruled that engineering firms must be exceptionally careful to differentiate between applying standard engineering protocols to achieve a known outcome and engaging in true experimental development to overcome a fundamental design uncertainty. Furthermore, the IRS has recently escalated substantiation requirements via administrative guidance (FAA20214101F), mandating that amended returns claiming the Section 41 credit must explicitly identify all business components, specify the individuals who performed the research by name, and detail the exact technical information sought to be discovered for every single component.

Wisconsin State R&D Tax Credit Administration

The State of Wisconsin provides a highly robust, supplementary R&D tax credit infrastructure designed to parallel the federal statute while offering distinct localized advantages aimed at retaining manufacturing and technology firms. Governed primarily by Wisconsin Statutes Section 71.28(4) for corporate entities and Section 71.07(4k) for individuals and pass-through entities, the Wisconsin Research Expense Credit rewards taxpayers for increasing qualified research activities physically conducted within the state’s borders.

Wisconsin Statutory Mechanics, Nexus, and Decoupling

Wisconsin administratively relies on the definitions of “qualified research” and “qualified research expenses” as defined in IRC Section 41, creating a baseline structural harmony between the federal and state calculations. However, Wisconsin imposes a strict geographic nexus requirement: only expenses incurred for research physically conducted within the State of Wisconsin are eligible for the state credit. Expenses incurred entirely outside Wisconsin cannot be allocated to the state, even if they were incurred for the ultimate benefit of a research project based in Wisconsin. If qualified research expenses are incurred both in and outside Wisconsin, and the amount incurred specifically in Wisconsin cannot be perfectly determined, a portion of the qualified expenses must be reasonably allocated using standardized apportionment methods. Furthermore, compensation used in computing other Wisconsin economic incentives, such as the development zones credit or the enterprise zones jobs credit, cannot be double-counted for the research credit.

A critical regulatory divergence occurred following the federal TCJA. While federal tax law now strictly requires the capitalization and five-year amortization of Section 174 domestic research expenses, Wisconsin explicitly decoupled from this restrictive provision. The Wisconsin Department of Revenue (DOR), via Publication 131, confirmed that Wisconsin continues to follow the IRC in effect on December 31, 2021. Consequently, taxpayers operating in Wisconsin may continue to fully expense their research and experimentation costs in the year they are incurred for state franchise and income tax purposes. This decoupling provides a massive, immediate cash flow advantage for research-intensive industries in Green Bay that is no longer available at the federal level.

Tiered Credit Rates and Targeted Industry Enhancements

Wisconsin utilizes a specialized incremental calculation model to determine the credit amount. The standard research credit is equal to 5.75 percent of the amount by which current-year Wisconsin QREs exceed 50 percent of the average Wisconsin QREs for the three preceding taxable years. For startup entities, or for existing taxpayers who had absolutely no QREs in any of the three prior taxable years, the credit gracefully defaults to a flat rate of 2.875 percent applied to the current-year QREs.

To strategically stimulate specific advanced manufacturing sectors critical to the state’s economic future, the Wisconsin legislature introduced enhanced credit rates. Under Wis. Stat. § 71.28(4)(ad)5 and 6, the standard credit rate doubles to 11.5 percent for research related to two highly specific technological domains:

• Internal Combustion Engines: Research related directly to designing internal combustion engines for vehicles, improving the manufacturing production processes for such engines, and designing substitute propulsive technologies, which statutorily includes fuel cells, electric drives, and hybrid drivetrains.
• Energy Efficient Products: Research related to the design and manufacturing of energy-efficient lighting systems, building automation and control systems, or automotive batteries for use in hybrid-electric vehicles that significantly reduce the demand for natural gas or electricity.

Refundability Provisions under Wisconsin Act 19

Historically, the Wisconsin R&D credit was strictly a nonrefundable entity, meaning it could only be utilized to offset a taxpayer’s current state franchise or income tax liability, with any excess remaining credit carried forward for a period of up to 15 years. In a major legislative shift designed to support capital-intensive startups and heavy manufacturers operating in loss positions, the state introduced partial refundability. Under Wisconsin Act 19 (enacted in 2023), the refundable portion of the state R&D credit was significantly increased to 25 percent for taxable years beginning after December 31, 2023.

The calculation of this refund is strictly governed by statutory ordering rules. A taxpayer must first apply the total computed credit against their current year Wisconsin gross tax liability. If the allowable credit exceeds the tax due, the Wisconsin Department of Revenue will issue a direct cash refund up to a maximum of 25 percent of the total computed credit for that year. The remaining 75 percent of the credit, if left unused against the tax liability, is converted into a nonrefundable carryforward that can be utilized over the next 15 years.

Administrative Adjudication and Unitary Business Rules

The Wisconsin Tax Appeals Commission (TAC) serves as the independent, quasi-judicial body responsible for adjudicating disputes between the Wisconsin Department of Revenue and taxpayers regarding credit eligibility, statutory interpretation, and audit assessments. TAC rulings have historically focused on strict statutory compliance and the complex interplay between unitary business groups. For instance, the Commission strictly enforces the statute of limitations under Wis. Stat. § 71.28(4)(h), requiring that any initial claim for a research credit must be filed within four years of the unextended due date of the tax return, even if the taxpayer is in a loss position and merely intends to establish a carryforward balance. However, under the legal doctrine of equitable recoupment, if the DOR initiates an audit of a previously closed year and assesses a tax deficiency, a taxpayer may defensively present previously unclaimed R&D credits from that same year to offset the new assessment, strictly up to the monetary amount of the deficiency.

Furthermore, for corporate entities operating within a combined reporting group, Wisconsin Administrative Code Tax 2.61 establishes strict ordering rules. A combined group member must first apply its self-generated R&D credits against its own gross tax liability. Only after the specific member’s tax liability is reduced to zero can the remaining nonrefundable, sharable credit be distributed to offset the tax liability of other affiliated members within the unitary business group. Notably, the 25 percent refundable cash portion of the credit cannot be shared across the group; it is calculated strictly based on the individual member’s current-year research generation and must be claimed on the combined return.

The Economic and Industrial Development of Green Bay, Wisconsin

To fully grasp the viability and scale of the R&D tax credit utilization in Green Bay, Wisconsin, one must trace the city’s unique industrial lineage. Situated at the mouth of the Fox River where it empties into the southernmost point of Green Bay (an inlet of Lake Michigan), the natural geography of the region has entirely dictated its economic destiny and industrial composition.

Established initially in 1634 by French explorer Jean Nicolet as a fur-trading outpost known as “La Baye,” the settlement capitalized on the vital waterway connections between the Great Lakes and the Mississippi River via the Fox and Wisconsin Rivers. For over a century, the area was controlled by the French and subsequently the British, functioning primarily as an extraction point for peltry and deer tallow. By the mid-19th century, following American acquisition and the construction of Fort Howard in 1816, the fur trade was largely depleted. The arrival of the railroad network in the 1860s catalyzed Green Bay’s transition into a major lumber and iron-smelting center. The surrounding dense Wisconsin forests provided seemingly infinite raw material, while the Fox River supplied critical hydropower for sawmills and transportation for massive lumber exports destined to build expanding cities like Chicago. By 1870, Green Bay claimed the title of the world’s largest shingle market, exporting 500 million wooden shingles annually.

However, this timber dominance was abruptly shattered. The catastrophic Peshtigo Fire of October 1871 decimated the region’s vast pine and hardwood timber stands, accelerating the permanent end of the lumber boom. Facing total economic collapse, regional entrepreneurs and industrialists pivoted aggressively to paper manufacturing. They leveraged the remaining scrub timber (which was previously bypassed by loggers), imported Canadian wood pulp, and harnessed the relentless, reliable water power of the Fox River. By the dawn of the 20th century, Green Bay had successfully transformed, eventually earning the moniker the “Paper Capital of the World,” establishing massive, capital-intensive manufacturing facilities that anchored the city’s economy and insulated it from the worst ravages of the Great Depression.

Simultaneously, the rich, fertile agricultural hinterlands of Northeast Wisconsin fostered a booming dairy and livestock sector. Meatpacking emerged as a dominant, centralized industry in the late 1800s to process the regional agricultural output, supported heavily by the expansion of refrigerated rail cars which allowed for national distribution. The dense concentration of heavy paper manufacturing and bulk food processing subsequently demanded highly robust logistics networks and specialized operational machinery. This secondary demand led to the organic growth of massive national trucking firms and highly advanced industrial equipment manufacturers.

Today, while the century-old paper industry has faced modern international consolidation, Green Bay retains a massive manufacturing heritage, with nearly one in five jobs still directly tied to the industrial sector. This historical progression—from raw resource extraction to highly engineered, automated manufacturing—has created a dense cluster of interrelated industries uniquely engaged in constant technological optimization. This environment makes Green Bay a highly fertile geography for the generation and utilization of Research and Development tax credits.

Green Bay Industry Case Studies and Tax Credit Eligibility

The following detailed case studies examine five prominent industries specific to the Green Bay economic ecosystem. Each section explores the historical catalysts that anchored the industry in Green Bay, followed by a rigorous analysis of how modern operations within these sectors meet the stringent legal requirements of the United States federal and Wisconsin state R&D tax codes.

The Paper and Corrugated Packaging Industry

Historical Development in Green Bay The paper industry is the foundational economic bedrock of modern Green Bay. Following the decline of the lumber industry, local businessmen shifted capital into paper production, and the Fox River Valley quickly became the Midwestern center for paper due to its unparalleled proximity to water power and rail transport routes. In 1933, local entrepreneur George Kress founded the Green Bay Box Company to offer a superior, lightweight corrugated alternative to the expensive and cumbersome wooden shipping crates used at the time. In 1948, to secure their supply chain, the company built the Green Bay Pulp and Paper Mill to produce a semi-chemical corrugated medium.

Foreshadowing modern environmental sustainability mandates, the Green Bay Mill began collecting old corrugated containers (OCC) in 1957—twenty years before municipal recycling became a recognized concept—to engineer new recycled mediums. By 1991, the facility eliminated the use of virgin pulp entirely, redesigning its processes to produce high-performance containerboard from 100 percent recycled fiber. In 2018, faced with an aging facility, Green Bay Packaging chose to remain in the city, investing over $600 million to build a state-of-the-art replacement mill. Opening in 2021, it marked the first new paper mill built in Wisconsin in over 30 years and achieved validation as the world’s first Net Zero Water facility.

R&D Tax Credit Application

Modern paper, tissue, and corrugated packaging facilities in Green Bay engage in massive technological undertakings that readily satisfy the IRC Section 41 Four-Part Test.

• Technological in Nature: Developing high-performance containerboard using entirely recycled, post-consumer waste requires advanced organic chemistry and material science. The wood fibers degrade each time they are recycled; therefore, engineering a process to maintain tensile strength, burst resistance, and printability using degraded fibers relies fundamentally on the hard sciences.
• Process of Experimentation: In response to modern regulatory pressures, Green Bay paper converters are actively researching PFAS-free barrier coatings for food packaging. This involves formulating a chemical hypothesis, creating prototype batch coatings, and subjecting them to rigorous moisture, heat, and grease resistance testing to evaluate alternatives. This systematic trial-and-error process perfectly aligns with the statutory definition of experimentation.
• Elimination of Uncertainty & Wisconsin Enhancements: Green Bay Packaging’s recent implementation of a circular reclaimed water system required extensive engineering research to solve uncertainties regarding the filtration, clarification, and reuse of industrial effluent. Furthermore, because these innovations dramatically improve energy efficiency (resulting in an 11% reduction in energy usage per ton of paper produced and capturing 100% of biogas from an anaerobic digester for electricity generation), Wisconsin-based engineering efforts dedicated to these utility controls could potentially qualify for Wisconsin’s enhanced 11.5 percent energy-efficient products credit rate under Wis. Stat. § 71.28(4)(ad)6.

Meatpacking and Food Processing

Historical Development in Green Bay The meatpacking industry developed in Green Bay as an essential downstream processor of the livestock raised in the surrounding agrarian hinterlands of Wisconsin. Prior to the American Civil War, meat processing was highly localized, but the expansion of railroads into Green Bay allowed for centralized stockyards and national distribution. The Indian Packing Company, incorporated in 1916 (and later merged with the Acme Packing Company), established a major canned meat facility in Green Bay, booming on lucrative contracts to provide canned foods to troops during World War I. The company famously sponsored a local football team in 1919, outfitting employee Curly Lambeau with jerseys that bore the “Council Meats” brand emblem, permanently birthing the Green Bay Packers.

Concurrently, local butchers the Liebmann Brothers purchased a small slaughter business in 1912. The brothers pioneered the first on-rail moving slaughter process in the United States at their Green Bay facility, massively increasing efficiency and hygiene compared to the traditional “bed” floor method. This historical infrastructure evolved into modern processing titans like American Foods Group and JBS, which currently anchor the city’s sophisticated food manufacturing base.

R&D Tax Credit Application

Food processing is a sector highly eligible for R&D credits, though fraught with documentation risks, as evidenced by the Siemer Milling Tax Court decision. In Siemer, the taxpayer lost their federal credit because they failed to scientifically document their flour formulation trials. Therefore, Green Bay meatpackers must strictly adhere to the Process of Experimentation test through contemporaneous laboratory documentation.

• Technological in Nature: Qualified activities in modern meatpacking fundamentally rely on biological sciences and mechanical engineering. Green Bay processors recruit heavily from local universities to staff Biosafety Level 2 (BSL-2) laboratories dedicated to advanced food pathogen mitigation (e.g., E. coli and Salmonella suppression techniques) and shelf-life extension research.
• Elimination of Uncertainty: Research into installing complex anaerobic digesters to process biological waste streams (such as blood and fat emulsion) into renewable biogas presents significant engineering uncertainties regarding temperature control, hydraulic flow, and microbial balance. The engineering time and prototype costs to successfully commission these systems qualify under Section 174.
• Business Component & Supply Expenses: Developing custom automated fabrication processing equipment to increase the yield of specific beef and pork cuts is a permitted purpose. If a Green Bay facility documents its systematic trial-and-error process for testing a new vacuum packaging film that increases shelf life while retaining optimal meat coloration, the wages of the food scientists, the cost of the prototype film, and the raw meat materials destroyed during testing represent highly lucrative QREs.

Transportation and Freight Logistics

Historical Development in Green Bay Because Green Bay was historically a massive exporter of heavy, bulky goods like paper rolls and canned meat, the region required a similarly massive logistics network to connect it to national markets. In 1935, during the height of the Great Depression, Al Schneider sold his family car to purchase a single truck to haul local freight in Green Bay. In 1958, Schneider obtained its first interstate authority from the Interstate Commerce Commission (ICC) to haul loads for Procter & Gamble from their Green Bay plant into Michigan.

Following the deregulation of the trucking industry via the Motor Carrier Act of 1980, Schneider National rapidly expanded its footprint. Under the leadership of Don Schneider, the company gained a reputation as a profound technological pioneer in the logistics space. In 1986, Schneider became the first carrier in the nation to install two-way satellite communication systems in all 6,000 of its over-the-road trucks, revolutionizing telematics and eliminating the need for drivers to pull over and hunt for payphones for dispatch instructions. Today, Schneider operates a massive intermodal network logging over 9 million freight miles daily, and the city also hosts other major carriers like Paper Transport, which was founded in 1990 specifically to haul for the Fort Howard Corporation.

R&D Tax Credit Application

Logistics giants in Green Bay generate R&D credits primarily through complex software engineering, systems optimization, and fleet electrification.

• Internal Use Software (IUS): Developing proprietary freight-matching algorithms, predictive maintenance software for tractors, or complex load-balancing systems to reduce empty trailer miles qualifies as Internal Use Software. To claim the wages of software developers under Section 41, the logistics company must pass the High Threshold of Innovation Test. The logistics software cannot be a commercially available off-the-shelf TMS (Transportation Management System); it must be uniquely programmed and scaled to handle the massive data load and economic risk of a 12,000-truck fleet, yielding significant, measurable economic advantages.
• Hardware Integration and Process Improvement: Schneider recently operationalized a massive fleet of battery-electric Freightliner eCascadias in California. The engineering integration required to optimize charging depot power loads, manage battery thermal dynamics in extreme weather, and develop proprietary route planning algorithms for electric heavy-duty trucks involves extensive engineering experimentation, perfectly satisfying the Section 174 test for uncertainty elimination. The wages of the operations engineers and systems architects managing this integration represent qualified research expenses.

Maritime Shipbuilding and Defense Manufacturing

Historical Development in Green Bay Green Bay’s immediate access to the sheltered waters of the bay, leading out to the rougher Great Lakes and eventually the Atlantic Ocean via the St. Lawrence Seaway, has fostered a resilient maritime and shipbuilding industry since the mid-1800s. While the early 19th century focused on wooden schooners for the lumber trade, the transition to steel hulls secured the region’s industrial future. During World War II, the shipyards of neighboring Sturgeon Bay and Manitowoc functioned at full capacity, famously producing Gato-class submarines and freighters for the US Navy.

This maritime engineering legacy persists today through the Fincantieri Marine Group. In 2008, the Italian shipbuilding conglomerate acquired regional shipyards, subsequently establishing Fincantieri ACE Marine in Green Bay. Operating in a state-of-the-art, climate-controlled facility directly on the Fox River, ACE Marine specializes exclusively in the modular construction of high-performance aluminum vessels. Utilizing a unique “System of Yards” concept, the Green Bay facility constructs aluminum superstructures and complex Response Boat-Mediums that are shipped via barge to sister yards in Marinette for final hull welding and assembly.

R&D Tax Credit Application

Shipbuilding is fundamentally an exercise in advanced engineering and naval architecture, presenting massive opportunities for both Federal and Wisconsin R&D credits.

• Process of Experimentation: Designing the aluminum superstructure for a military vessel or a high-speed Coast Guard interceptor requires relentless hydrodynamic modeling, finite element analysis, and structural stress testing to optimize speed, buoyancy, and armor plating while reducing total vessel weight. The wages of naval architects, structural engineers, and welding specialists developing new joining techniques for marine-grade aluminum qualify under Section 41.
• Funded Research Exclusions: A critical legal nuance for defense contractors is the “funded research” exclusion under IRC Section 41(d)(4)(H). As highlighted in recent tax court rulings, if a government contract pays for the research on a “time and materials” basis regardless of the technical outcome, it is considered funded and ineligible for the credit. However, if the shipyard enters into a firm-fixed-price contract where payment is strictly contingent on delivering a vessel that meets rigorous performance milestones, the shipyard retains the economic risk, and the engineering expenses qualify as QREs.
• Wisconsin Enhanced Credits: Engineering experimentation dedicated to integrating next-generation hybrid drivetrains or highly efficient marine combustion engines into these patrol vessels qualifies for Wisconsin’s 11.5 percent enhanced credit rate under Wis. Stat. § 71.28(4)(ab).

Industrial Machinery and Converting Equipment

Historical Development in Green Bay The massive concentration of paper mills in the Fox River Valley created an intense, secondary local demand for specialized machinery to fold, cut, and package the paper products being produced. In 1870, a small machine shop in Green Bay began repairing steamboats and sawmill parts, eventually evolving into the Hudson-Sharp Machine Company under new ownership in 1910. Hudson-Sharp began manufacturing the first napkin folders in the United States to supply the adjacent paper mills.

Following his deployment in Europe during WWII, manager Sam Campbell returned to Green Bay and, recognizing a need for automated food packaging, invented the horizontal flow wrapper, securing a patent in 1946. The “Campbell Wrapper” revolutionized the packaging of cheese, candy, and paper goods globally, establishing Green Bay as a hub for packaging automation. Today, a dense network of original equipment manufacturers (OEMs) and converting machine builders remains rooted in Green Bay, designing bespoke robotics, wicketers, and flexible packaging lines for global clients.

R&D Tax Credit Application

Custom machine building represents the quintessential R&D tax credit profile. Because these OEMs rarely build the exact same machine twice, nearly every client project involves overcoming technical uncertainty.

• Elimination of Uncertainty: When an OEM in Green Bay designs a bespoke high-speed wicketer or a stand-up pouch machine with integrated zipper technology (e.g., Inno-Lok systems), they must resolve uncertainties regarding material handling, variable web tension, and heat-sealing speeds for new, thinner sustainable polymer films.
• Technological in Nature: Overcoming these mechanical challenges relies entirely on the principles of mechanical engineering, electrical engineering, and physics.
• Qualified Supply Expenses and WI Exemptions: Under Section 41, the raw materials (steel, aluminum, sensors, programmable logic controllers) used to build the first-of-its-kind experimental prototype packaging machine qualify as supply QREs, provided they are not treated as depreciable property by the taxpayer. If the successful prototype is ultimately sold to a customer, the costs incurred during the developmental and testing phases prior to commercial production still qualify as research expenses. Furthermore, Wisconsin’s specific sales and use tax exemption significantly benefits these manufacturers by exempting the purchase of machinery, testing equipment, and tangible personal property that is used exclusively and directly in qualified research activities.

Final Thoughts

The Research and Development tax credit remains one of the most powerful fiscal tools available to American corporations, effectively lowering the cost of innovation and subsidizing the financial risk inherent in technological development. However, realizing these financial benefits requires rigorous statutory compliance and meticulous, contemporaneous documentation to withstand escalating scrutiny from both the IRS and the Wisconsin Department of Revenue. The statutory interplay between federal IRC Section 41, Section 174 amortization rules, and Wisconsin Statutes Section 71.28(4) creates a highly lucrative but complex landscape, particularly given Wisconsin’s strategic decoupling from federal capitalization rules and its recent enactment of partial credit refundability under Act 19.

As demonstrated by the historical evolution of Green Bay, Wisconsin—a city defined by its resourcefulness, resilience, and industrial adaptation—the region’s legacy industries are continuously engaged in the exact process of experimentation that the tax code was designed to reward. From the chemical engineering of recycled paper and the biological mitigation of food pathogens to the architectural design of aluminum patrol boats and the software architecture of national logistics networks, Green Bay’s industrial base is fundamentally driven by R&D. By aligning their inherent culture of manufacturing innovation with the strict legal parameters of the four-part test, Green Bay enterprises can successfully leverage these tax incentives to finance their continued technological dominance in the global market.

The information in this study is current as of the date of publication, and is provided for information purposes only. Although we do our absolute best in our attempts to avoid errors, we cannot guarantee that errors are not present in this study. Please contact a Swanson Reed member of staff, or seek independent legal advice to further understand how this information applies to your circumstances.